3 reasons to like shares more than buy-to-let property

Man holding magnifying glass over a document
Man holding magnifying glass over a document

The newswires were buzzing last week when the most-recent Rightmove house price index showed the largest drop in November average house prices coming to market since 2012, at 1.7%.

It was an “early Christmas gift for buyers as sellers lower their price expectations,” Rightmove said in the report. The company, which runs the UK’s largest property portal, reckons the national average asking price for houses stands at £302,023, down £5,222 during the month.

More realistic pricing

It’s all down to new sellers “pricing more realistically,” according to Rightmove, and the trend has been fuelled by stretched affordability and Brexit uncertainty, it said. The largest falls were in the south and the “upper price sector.” Should you be worried if you are a buy-to-let landlord? Maybe.

The kicker for me is the ‘affordability’ part of the equation. Rightmove said sales agreed nationally rose 1% compared to a year ago, but I think sales will only flow if the price is right. The backdrop for owning property looks uncertain to me. Prices have been rising for years and I think they look toppy. Meanwhile, interest rates have been stirring and could start to creep up soon, which could work to keep a cap on house prices going forward – perhaps until affordability catches up.

If you are thinking of going into buy-to-let for the first time, maybe now is not a good time. The start-up costs are large when you consider the deposit you’ll need to invest in a property and the tax regime has rendered the ownership of tenanted property far less attractive than it once was.

Passive investing saves time

On top of that, getting your hands dirty by physically owning and operating property in a buy-to-let scenario is seriously time-consuming and hassle-filled, which may not be ideal if you are already busy working in another career. Instead, I reckon passive investing in shares is a far more attractive option.

I’d go for opening a stocks and shares ISA and investing in a low-cost index tracker fund within it so you gain all the tax advantages that an ISA offers. You could pick a tracker fund that follows the FTSE 100 index or the FTSE All Share index, or maybe you would prefer to pick a managed fund where a fund manager makes all the investment decisions.

Compared to investing in buy-to-let, investing in shares is far less bothersome and requires a lot less time to maintain. Here are three reasons to do it now.

Pipes don’t burst

You won’t get any calls to say your pipes have burst with shares. The heating won’t break down either, and the door won’t fall off its hinges. Passive share investing doesn’t take time and money to maintain like buy-to-let can.

Directors don’t build up dividend arrears

Unlike tenants, who sometimes won’t, or can’t, pay their rent, the directors of the underlying companies you’ve invested in don’t build up dividend arrears. The dividend payments will keep coming from your index tracker or managed fund and if you choose a fund that automatically reinvests them, you’ll be on the road to compounding your money.

You don’t have to leave your home to invest

Best of all, with shares you can invest from the comfort of your own home, so you can say goodbye to all the hassle that comes with buy-to-let.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.


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